Now that the tax filing deadline for year 2019 has been extended to July 15, 2020, many folks are taking advantage of the extra time to fill out their returns. If you haven’t filed yet, here are some quick reminders of tax deductions you can take as a home owner. In a nutshell, mortgage interest, property taxes and other expenses are tax deductible if you itemize deductions on your return.
Compare Standard Deduction to Itemization
First, determine if itemizing makes financial sense for your circumstances. Since the Tax Cuts and Jobs Act of 2017 took effect, the IRS standard deduction is much larger, which means many home owners find they save more by taking the standard deduction instead of itemizing.
For the 2019 tax year, standard deductions are as follows:
∙ $24,400 for married couples filing jointly
∙ $12,200 for single and married individuals filing separately
∙ $18,350 for unmarried heads of households
These are almost double what they were for 2017.
If the sum of qualified deductions is likely more than the standard deduction, then itemize; if not, then take the standard deduction. Here are the tax deductions to include in your calculations for itemized deductions.
Mortgage Interest
A portion of every mortgage payment goes toward interest on the loan. You can deduct this interest up to the following limits (which depend on when you took out the loan):
∙ Dec. 16, 2017, and later: You can deduct the interest on up to $750,000 of mortgage debt (or up to $375,000 if you’re married and filing separately).
∙ Oct. 14, 1987, through Dec. 15, 2017: You can deduct the interest on up to $1 million of mortgage debt ($500,000 if married and filing separately).
∙ For refinanced mortgages, the limit depends on the old loan’s origination date. If the mortgage predates Oct. 14, 1987, all the mortgage interest may be deductible.
Your mortgage servicer sends a statement each year showing how much interest you paid.
Home Equity Loan Interest
If you have a home equity loan or line of credit, the interest paid on it is deductible, but only if the loan was used on home improvements. Note that your total loan amount or line of credit counts toward the total mortgage debt limit for deducting interest.
Discount Points
Some borrowers buy discount points from their lender to lower their overall mortgage interest rate. As long as you remain within your mortgage interest deduction limit, you may also deduct the amount you paid for discount points. Note that this does not include “loan origination points,” which are not tax-deductible.
Property Taxes
You can also deduct the amount you paid on property taxes, but there are limits. You can deduct up to $10,000 (or $5,000 if married and filing separately) in property taxes, combined with state and local income taxes or sales taxes.
Medical Home Improvements
Any home improvement made for the health and safety of an individual, spouse, or dependent is tax-deductible so long as that improvement is not considered one that increases property value, though you may still get a partial deduction. Deductible improvements typically include entrance ramps, widened doorways, lowered counters, and support rails.
Home Office Expenses
If you’re self-employed and use a home office exclusively for your business, office expenses are deductible. Check the IRS worksheet for how to calculate your deduction amount.
Mortgage Insurance Premiums
Currently the cost of mortgage insurance is tax deductible and includes conventional loans and FHA loans, as well as fees specific to USDA and VA loans. To claim this deduction, your mortgage insurance contract must have been issued after 2006 and your adjusted gross income must be below $109,000 ($54,500 if married and filing separately).
Home Owner Costs that Aren’t Deductible
Type of expenses that you cannot deduct are: home insurance premiums, HOA fees, transfer taxes or stamp taxes, utilities, rent, depreciation, or wages for domestic help.
Real Estate Term of the Week
Loan Origination Points: Origination points are a fee charged by the lender to compensate the loan officer. Sometimes mortgage points are referred to as an origination fee, but they are the same thing. On average most lenders charge approximately 1 origination point.